Genworth’s mortgage insurance outpaces rest of business

Cutbacks coming in other operations

Although Genworth Financial (GNW) is adjusting its long-term care insurance business, for now marring earnings, the company’s mortgage insurance business is performing well.   

In its most recent earnings, Genworth reported net loss of $760 million, or $1.53 per diluted share, compared with net income of $208 million, or $0.41 per diluted share, in the fourth quarter of 2013.

The net operating loss for the fourth quarter of 2014 was $416 million, or $0.84 per diluted share, compared with net operating income of $193 million, or $0.38 per diluted share, in the fourth quarter of 2013.

"I am disappointed by the continued challenges in our older Long Term Care Insurance blocks and how it is overshadowing otherwise strong performance and momentum in other businesses, however we have taken steps on many fronts to deal with these challenges in order to strengthen and rebuild the future. During the quarter we conducted a thorough review of our portfolio, exploring all options to maximize long-term shareholder value,” said Tom McInerney, President and CEO. 

“As a result, we are taking proactive measures to leverage our strengths, namely in the Global Mortgage Insurance Division, and rationalize our portfolio including reducing costs and debt levels. These efforts will better position the company for profitable growth, and improve our capital position and return on equity. While LTC continues to be challenged, we plan to capitalize on our industry leadership and drive regulatory changes that are necessary to sustain this business long term," he continued.

An article in Work It, Lynchburg reported that the insurer plans to restructure its business and cut costs, which includes some job reductions, though the extent of the cuts is unknown at this time.

The insurer had said late Tuesday that it expects to undertake “a multistep restructuring plan” intended to save the company more than $100 million, pre-tax, over the next two years, including consolidation of its U.S. life insurance division and corporate holding company functions.

In part, the loss was the result of difficulties in Genworth’s long-term-care insurance business, which provides coverage for nursing home and assisted living care.

But the insurer’s earning did have some good news: mortgage insurance.

Genworths’s U.S. mortgage insurance segment posted net operating income of $21 million, compared with a net operating loss of $2 million in the prior quarter and net operating income of $6 million in the prior year.

Results in the prior quarter included $4 million of favorable tax benefits from a prior year true-up, as well as $34 million of after-tax accruals recorded principally in connection with the settlement agreement with Bank of America (BAC) as well as discussions with another servicer in an effort to resolve pending disputes over loss mitigation activities.

“During the quarter, the company increased its single premium lender paid new insurance written reflecting its selective participation in this market. Future volumes of this product will vary depending on the evaluation of the risk return profile of these transactions. Overall private mortgage insurance market penetration was flat compared with the prior quarter and up approximately three points year over year as purchase penetration increased. The company's estimate of its market share at the end of the quarter is approximately 15%,” the earnings said.  

The mortgage insurance has undergone a lot of changes lately. Back in December, both government-sponsored enterprises officially announced their individual 97% loan-to-value products, in the government’s latest attempt to expand the credit box for first-time homeowners.  

And at the beginning of the year, the Obama Administration directed, via executive action, the Federal Housing Administration to reduce annual mortgage insurance premiums by 50 basis points, from 1.35% to 0.85%.




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